CandleFocus

Jekyll and Hyde

Jekyll and Hyde is an analogy used to describe a financial market that fluctuates wildly and unexpectedly, as if it had two equally-extreme participants with very different personalities who are trading against one another. The analogy was first made in 1886 by Robert Louis Stevenson to describe his fictional character of Dr. Jekyll and Mr. Hyde, a respectable scientist and gentleman by day, but whose hidden inner persona was a malicious murderer by night.

This concept of two "personalities" can also be applied to financial markets, where the normal calm and rational market can transformation into chaos just as quickly. A Jekyll and Hyde stock market can experience huge highs and lows which are only exacerbated by fear and uncertainty. This is an example of behavioral finance, which states that market behavior is often driven by considerations of emotion, expectations, and past experiences.

Economists argue that this kind of behavior is not caused by rational thought, such as an analysis of the market’s underlying conditions. Instead, these market wild swings may be triggered by the heightened emotions of panic and fear, which in turn lead to irrational acceptance of over-reactions which cause the market to become more volatile. It is a case of people trading on emotion rather than rational thought.

The availability of information in the digital age may also cause the unpredictable behaviour of a Jekyll and Hyde stock market. With increasing access to financial data, traders may be responding to real-time news sources, conflicting opinions, and technical analyses, fuelling market speculation much quicker than before.

Overall, a Jekyll and Hyde stock market is an example of the psychological and emotional effects markets can have. While this kind of behavior is often irrational and out of control, it highlights the need to develop strategies which involve managing emotion, looking at the market in the long-term, and taking measures to mitigate risks.

Glossary Index